Reinsurance

12 Months Ended

Dec. 31, 2023

Reinsurance activity related to our premium income, policy benefits, and policy benefits remeasurement gain are as follows:


	Year Ended December 31
	2023		2022		2021
	(in millions of dollars)
Direct Premium Income	$	10,286.8	$	9,893.6	$	9,736.8
Reinsurance Assumed	80.4		78.7		90.6
Reinsurance Ceded	(321.2)		(355.8)		(352.4)
Net Premium Income	$	10,046.0	$	9,616.5	$	9,475.0

Direct Policy Benefits	$	8,001.8	$	8,205.3	$	8,817.1
Reinsurance Assumed	138.7		135.1		145.0
Reinsurance Ceded	(828.6)		(798.3)		(848.8)
Net Policy Benefits	$	7,311.9	$	7,542.1	$	8,113.3

Direct Policy Benefits - Remeasurement Gain	$	(49.2)	$	(372.5)	$	(546.2)
Reinsurance Assumed	(0.1)		36.4		1.9
Reinsurance Ceded	(5.5)		(211.4)		(15.6)
Net Policy Benefits - Remeasurement Gain	$	(54.8)	$	(547.5)	$	(559.9)

In December 2020, we completed the first phase of a reinsurance transaction, pursuant to which Provident, The Paul Revere Life Insurance Company (Paul Revere Life), and Unum America, wholly-owned domestic insurance subsidiaries of Unum Group and collectively referred to as "the ceding companies", each entered into separate reinsurance agreements with Commonwealth Annuity and Life Insurance Company (Commonwealth), to reinsure on a coinsurance basis effective as of July 1, 2020 approximately 75 percent of the Closed Block individual disability business, primarily direct business written by the ceding companies. In March 2021, we completed the second phase of the reinsurance transaction, pursuant to which the ceding companies and Commonwealth amended and restated their respective reinsurance agreements to reinsure on a coinsurance and modified coinsurance basis effective as of January 1, 2021, a substantial portion of the remaining Closed Block individual disability business that was not ceded in December 2020, primarily business previously assumed by the ceding companies.

In December 2020, Provident Life and Casualty Insurance Company (PLC), also a wholly-owned domestic insurance subsidiary of Unum Group, entered into an agreement with Commonwealth whereby PLC will provide a 12-year volatility cover to Commonwealth for the active life cohort (ALR cohort). In March 2021, PLC and Commonwealth amended and restated this agreement to incorporate the ALR cohort related to the additional business that was reinsured between the ceding companies and Commonwealth as part of the second phase of the transaction. As part of the amended and restated volatility cover, PLC received a payment from Commonwealth of approximately $18 million.

In connection with the second phase of the reinsurance transaction, Commonwealth paid a total ceding commission to the ceding companies of $18.2 million. The ceding companies transferred assets of $767.0 million to Commonwealth, which consisted primarily of cash and fixed maturity securities. In addition, we recognized the following in 2021 related to the second phase:

•Net realized investment gains totaling $67.6 million related to the transfer of investments.

•Transaction costs totaling $6.2 million.

•Reinsurance recoverable of $1,132.5 million related to the policies on claim status (DLR cohort).

•A reduction to the cost of reinsurance, or prepaid reinsurance premium, of $99.4 million related to the DLR cohort.

•Deposit asset of $5.0 million related to the ALR cohort.

•Payable of $307.2 million related to the portfolio of invested assets associated with the business ceded on a modified coinsurance basis.

We amortized the cost of reinsurance related to both Phase 1 and Phase 2 of $44.1 million, $50.3 million, and $69.8 million in 2023, 2022, and 2021, respectively.

As of December 31, 2023, Commonwealth accounted for 56 percent of the total reinsurance recoverable and the majority of our total cost of reinsurance. Commonwealth has an A rating by A.M. Best Company (AM Best) and has also established collateralized trust accounts for our benefit to secure its obligations. In addition, nine other major companies, which account for approximately 39 percent of our reinsurance recoverable, are also rated A or better by either AM Best or Standard & Poor's Ratings Services (S&P), or are fully securitized by letters of credit or investment-grade fixed maturity securities held in trust. Approximately 4 percent of our reinsurance recoverable is primarily related to business reinsured with other companies also rated A- or better by AM Best or S&P, with overseas entities with equivalent ratings, or backed by letters of credit or trust agreements, or through reinsurance arrangements wherein we retain the assets in our general account. Less than one percent of our reinsurance recoverable is held by companies either rated below A- by AM Best or S&P, or not rated.